Global Agriculture and the Doha Round:
Market Access Is the Key
Despite benefits of freer
trade, high agricultural tariffs remain a sticking
point in suspended Doha Round trade talks.
Anne Normile, and John
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liberalization leads to economic gains
for both developed and developing countries
through more efficient use of resources
as well as the productivity and investment
growth that come with more open markets.
market access by lowering tariffs would
produce the greatest share of benefits
from trade liberalization.
remain contentious in agricultural negotiations,
because many agricultural tariffs are
high and cuts will have to be ambitious
to increase trade and secure a successful
article is drawn from . . .
Trade Preferences and the Developing Countries,
by John Wainio, Shahla Shapouri, Michael Trueblood,
and Paul Gibson, ERR-6, USDA, Economic Research
Road Ahead: Agricultural Policy Reform in
the WTO—Summary Report, Mary
Burfisher, editor, AER-797, USDA, Economic
Research Service, January 2001.
may also be interested in . . .
Briefing Room on the WTO
For the past 5 years, World Trade
Organization (WTO) members have struggled to negotiate
a new agreement in the Doha
Development Round. In
launching a new round of trade negotiations, WTO
members recognized the contribution of the multilateral
trading system to economic growth and development
and pledged to continue reforming economic policies.
In addition, the Doha declaration emphasized the
interests of developing countries, which constitute
the majority of WTO members, adding complexity to
the talks but increasing the potential gains.
Agriculture has taken center stage
in the Doha Round, as it did in the Uruguay Round.
Its importance to a final agreement was underlined
by the recent suspension of Doha Round negotiations
on July 24, mainly as a result of difficulties in
finding common ground in agriculture. Persistent
wide differences on the necessary level of cuts
in agricultural tariffs and domestic support were
the primary reason behind the indefinite suspension
of negotiations. Clearly, progress in all three
areas, or “pillars,” of agricultural
trade policy—market access, export subsidies,
and domestic support—is needed to reach consensus.
But research has indicated that tariff reductions
that improve market access are key to achieving
the benefits of trade liberalization.
Trade Liberalization Leads
to Economic Gains
The last several decades have
witnessed a surge in global economic growth. More
open markets create opportunities for growth by
encouraging more efficient allocation of resources.
For some countries, this means that labor and other
resources may shift from agriculture and other primary
production sectors to higher value economic activity.
More open markets also encourage transfers of technology
and technical expertise. With growth in human and
physical capital can come increased productivity
and investment in manufacturing and service industries.
Where these developments bring higher incomes, an
increase in consumer demand for goods and services
provided through global markets may in turn develop.
Countries often impose policies
that interfere with open markets in agriculture.
WTO members have organized agricultural negotiations
to address three categories of policy that can distort
access, which includes import barriers
like tariffs and tariff-rate quotas (TRQs); domestic
support, which includes producer subsidies through
income and price support programs; and export
By distorting production or consumption decisions,
each of these types of policies can impose economic
costs both on the countries that employ them and
on their trading partners.
Import barriers distort markets
by raising the effective price of imported goods,
thereby reducing the competitiveness of imports.
Reduced competition from imports supports higher
prices for domestic goods and encourages increased
domestic production. Import barriers also help keep
inefficient domestic producers in operation, and,
like trade-distorting domestic subsidies, they keep
resources in the production of supported products
that could be employed more profitably elsewhere,
including outside of agriculture. Trade-distorting
domestic supports also lead to an increased supply
of agricultural products. For exporting countries,
the increased supply will lead to greater exports;
for importing countries, it will reduce demand for
imports. The resulting increase in exports and/or
reduction in imports can depress world prices and
increase competition for producers in other countries.
This situation is compounded when export subsidies
are used to dispose of excess domestic production
on world markets.
Removing or reducing such distortions
through multilateral trade negotiations results
in widespread economic benefits. In countries with
low protection, producers of products for which
world prices rise will benefit from higher prices
and increased exports. Consumers in formerly protective
countries will gain from lower prices induced by
competition with lower priced imports. Policy reforms
often lead to greater investment in developing countries,
increasing the productive capacity of their economies.
In the longer term, growth in investment and productivity
further enhances trade by increasing countries’
ability to import agricultural products.
To quantify the gains from trade
liberalization, ERS research—at the opening
of the Doha negotiations in 2001—estimated
the costs of agricultural policy distortions to
the world economy and the likely economic gains
from their removal. The combination of agricultural
tariffs, domestic support, and export subsidies
was estimated to dampen world agricultural prices
by about 12 percent. ERS estimated that the increased
investment and productivity growth under more open
economies accounted for nearly half of total global
benefits from trade liberalization and were a particularly
important component of gains for developing countries.
Increasing Market Access
ERS identified import barriers—tariffs—as
the largest source of global economic costs from
agricultural policy distortions, accounting for
over half of the estimated reduction in agricultural
prices. Subsequent research has also cited tariff
elimination as the source of greatest potential
benefits from trade liberalization, although estimated
gains differ based on methodology and assumptions
about market conditions.
Tariffs are more price distorting
than domestic support or export subsidies largely
because they are more widely used. Tariffs directly
affect market prices, having an impact on both producer
and consumer decisions. Many countries choose to
support domestic prices through tariffs, which may
increase government revenues, rather than with domestic
subsidies, which must be financed through government
spending. Countries that use domestic programs to
provide both price support and price stability for
producers frequently use tariffs so that lower cost
imports will not undermine the effectiveness of
price support operations.
Tariff cuts would provide significant
benefits by forcing reductions in domestic price
supports, used primarily by developed countries.
Significant gains would also be achieved from improved
market access among developing countries. Their
elimination of tariffs would account for more than
a third (38 percent) of the estimated increase in
world prices resulting from a global end to tariffs.
Developing countries themselves stand to benefit,
as trade among developing countries—so-called
South/South trade—accounts for 46 percent
of agricultural exports in those countries. According
to ERS research, the U.S. would see its greatest
economic gains from a removal of import barriers.
U.S. agriculture would also benefit from investment-
and productivity-led demand growth in developing
countries for U.S. farm products.
Although analysts agree that increasing
market access through tariff reductions holds the
greatest potential gain from trade liberalization,
market access reform remains the most contentious
area of agricultural negotiations. Both developed
and developing countries face domestic pressures
to maintain tariff barriers despite the mandate
to reduce them in the Doha negotiations. Under some
circumstances, pressure to maintain tariff barriers
may come from trading partners (see “Why
Are Tariff Preferences an Issue?”).
In developed countries, tariffs
can continue to provide support to producers even
as domestic programs shrink. Policy changes since
the Uruguay Round have demonstrated that some countries
can further reduce export subsidies and, increasingly,
trade-distorting domestic support. However, unilateral
policy reforms generally have not included reductions
in import barriers, which remain high even in some
countries where subsidies have declined markedly.
Countries also use import barriers to promote food
security or environmental/rural development objectives.
Developing countries may find tariffs a particularly
valuable revenue source, as well as a means of controlling
imports to manage their balance of payments. Developing
countries generally lack the financial resources
to support farmers directly. Import barriers can
be a means of protecting less productive or small-scale
agriculture that sustains rural communities and
employs much of the population. So tariffs remain
a mainstay of agricultural policy in many countries
and are politically difficult to reform, despite
evidence of the benefits.
Are Tariff Preferences an Issue?
The current instrument
for achieving increased market access for
developing-country exports is tariff preferences
granted by developed countries. Under these
arrangements, developed countries allow imports
of some products from developing countries
at tariffs below those levied on other countries.
The margin of preference essentially depends
on the difference between the preferential
tariff and the bound tariff (maximum tariff
that a country agrees to observe) that most
other countries face. When bound tariffs are
reduced through multilateral trade negotiations,
the margin of preference developing countries
receive is reduced, a process known as preference
Eligible countries generally
welcome tariff preferences, and some have
proposed that the tariff-cutting process for
important products that receive preferences
be delayed in order to protect margins of
preference. Some small island developing states
that rely heavily on preferential exports
of agricultural products are concerned that
preference erosion would make their exports
vulnerable to increased competition from other
countries, including other developing countries.
They have asked that the market access provided
under preferences be maintained during the
reform process, a proposal that has put them
at odds with developing countries advocating
deep cuts in developed country tariffs.
ERS research has shown that,
in general, the trade gains from preferential
trade programs tend to be concentrated among
higher income developing countries, which
include some of the world’s largest
agricultural traders. This occurs despite
the fact that they tend to benefit from preferences
on a much smaller range of products than the
least developed countries (LDCs). Frequently,
the LDCs lack the production and export capacity
to take advantage of tariff concessions. However,
despite their relatively modest exports under
these programs, LDCs are expected to be more
vulnerable to increased competition if bound
tariffs are cut.
As a group, developing countries
should gain from cuts in bound tariffs. Many
products exported by higher income developing
countries either are excluded from these programs
or receive preferences only for limited quantities.
The tariffs levied on excluded products tend
to be significantly higher than those on which
preferences are granted. As a result, while
LDCs may experience some trade loss due to
preference erosion, these losses are expected
to be more than balanced by trade gains in
the larger, more efficient developing countries,
particularly in products not currently subject
to preferences or constrained by quotas. In
order to assist LDCs, some have proposed allowing
duty- and quota-free access for all LDC agricultural
exports to both developed and higher income
Doha Talks Highlight Market
The importance of increasing access
to foreign markets for their producers has led some
countries to focus on market access negotiations.
For competitive exporting countries—including
developed countries like the United States, Canada,
Australia, and New Zealand, and developing countries
like Brazil and Argentina—tariff barriers
limit their access to markets and erode potential
returns to their producers. For them, improved market
access is a high priority in the Doha trade talks.
For the United States, it is seen as an essential
balance to reductions in domestic support programs.
In the Uruguay Round, a major
success story was tariffication, whereby countries
agreed to convert their nontariff import barriers
like quotas into bound tariffs (maximum tariffs
that countries agree to observe) to make them more
transparent and facilitate their reduction. The
tariff-cutting formula in the Uruguay Round required
that developed-country tariffs be cut by an average
of 36 percent, subject to a minimum cut of 15 percent
for individual tariffs (24-percent average and 10-percent
minimum for developing countries). The latitude
inherent in this formula meant that tariffs that
were high at the outset of negotiations remained
high after the cuts were made, preserving the wide
disparity of tariffs within and across countries
(see “Varying Tariff Profiles
Illustrate Difficulties in Negotiating Cuts”).
Doha Round negotiators also must
agree on a formula for tariff reduction. The transparency
created by tariffication highlighted the disparities
preserved through the Uruguay Round formula. At
last December’s Hong Kong ministerial meeting,
WTO members agreed to reduce the disparity in tariffs
through a tiered approach, with larger cuts for
tariffs in higher tiers. This tariff-cutting approach
would harmonize tariffs more than linear cuts used
in the Uruguay Round.
Several exceptions to scheduled
tariff cuts have been discussed. In the Hong Kong
ministerial declaration, members acknowledged a
need to allow lower tariff cuts for sensitive products.
Countries would be allowed to designate a percentage
of tariff lines as sensitive products, with proposals
ranging from 1 to as much as 15 percent of tariff
The Hong Kong declaration also
made several concessions to developing countries.
Special and differential treatment granted to developing
countries would subject them to shallower tariff
cuts and longer transition periods to implement
those cuts. The ministerial declaration also adds
the concept of self-designation for special products
in the context of developing countries’ food
security, livelihood security, or rural development.
While all products are expected to contribute to
the reform process, tariffs on special products
would be eligible for flexible treatment with respect
to the amount they would be cut and the degree to
which they would be subject to any new market access
The Special Safeguard Mechanism
(SSM) would allow developing countries to raise
import duties temporarily to deal with surges in
imports or drops in prices. Many developing countries
view the SSM as another fundamental component of
special and differential treatment that should be
available for all agricultural products, while developed
countries tend to view it as another way for developing
countries to avoid market penetration. In previous
rounds, making a safeguard mechanism available amid
rapidly increasing imports or falling prices was
seen as one way to convince countries to cut their
bound tariffs more rapidly than they would otherwise.
Disagreement on Market
Opening Threatens Deadlines
Most export-oriented developing
countries are eager to gain additional access for
their exports in developed-country markets. However,
developing countries as a group differ on the extent
to which they should open their own markets. Developing
countries have generally favored reduced expectations
for opening their markets in order to protect undeveloped
agricultural sectors on which a large share of the
population depends. Export-oriented developing countries,
however, may be willing to sacrifice some protection
for other sectors to gain access for their agricultural
exports to developed-country markets. Developing
countries do agree that offers to reduce their own
tariffs substantially hinge on developed-country
commitments to substantially reduce domestic support.
The degree of market opening is also a point of
disagreement among developed countries. Several
food-importing countries with highly protected agricultural
sectors—including Japan, Korea, Norway, and
Switzerland—have resisted ambitious market-opening
The Doha Round, while making some
significant tentative progress, has stumbled over
attempts to agree on “modalities,” or
formulas (including numerical targets) for cutting
tariffs, domestic support, and export subsidies.
These modalities, to be used by members to produce
their commitments, were to be agreed to by April
30, 2006. A subsequent deadline was missed when
a meeting of trade ministers concluded without a
breakthrough on July 24, 2006, and negotiations
were suspended. The Bush administration’s
trade promotion authority, deemed essential to negotiating
trade agreements, expires in June 2007, which puts
pressure on negotiators to reach agreement soon
if the Doha Round is to reach a successful conclusion.
Without some major new efforts by WTO members, meeting
that deadline may not be possible.
Tariff Profiles Illustrate Difficulties in
look at the pattern of tariff protection among
WTO members may help explain why increased
market access is so difficult to achieve.
WTO-bound agricultural tariffs—the maximum
tariff rates that each WTO member may impose
on imports—average 62 percent globally,
although rates vary widely by countries and
across commodities. While a bound tariff reflects
the maximum to which a tariff can be raised
and still be in accordance with WTO agreements,
most countries impose tariffs on imports that
are below these levels. These applied tariffs
average 19 percent globally.
The difference between bound
and applied tariffs tends to be greater for
developing countries. Compared with developed
countries, developing countries also have
a higher share of products for which bound
tariffs are over 50 percent, and often over
100 percent. Some developed countries also
maintain a similarly high level of tariffs
for a few products that governments consider
to be sensitive, and for which they seek continued
protection in the WTO negotiations.
Most agricultural tariffs
in developed countries are now quite low.
U.S. tariffs are among the lowest worldwide,
averaging 12 percent. For most developed countries,
three-quarters or more of their bound agricultural
tariffs are below 25 percent. Three percent
of the tariffs in the U.S. agricultural schedule
exceed 50 percent, versus 9 percent for the
EU and 19 percent for Japan. Most of the highest
U.S. tariffs are the over-quota tariffs imposed
on sensitive products with tariff-rate quotas,
such as dairy, sugar, tobacco, and peanuts.
In other countries, tariffs over 50 percent
are mainly on meats, dairy products, and sugar
(and also grains, fruits, and vegetables in
the EU and Japan).
By maintaining higher bound
rates, countries appear to reserve the right
to raise tariffs on raw agricultural products
such as fruit, vegetables, grains, and sugar
commodities. Actual applied tariffs may be
lower. In contrast, partly to encourage domestic
manufacturing, value-added products such as
dairy, tobacco products, and processed food
products (various fruit juices, chocolates,
peanut butter, sugar confectionery) carry
the highest applied tariffs.
In the Doha Round of negotiations,
cuts will be negotiated based on bound tariffs.
Because of the large differences between bound
and applied tariffs for most countries, the
reduction formula negotiated will have to
be ambitious in order to substantively expand
market access, while at the same time allowing
smaller tariff cuts for developing countries
and special consideration for sensitive products.